Ethical And Professional Standards Quantitative Methods And Economics Level II Volume 1 CFA Institute - Solutions

The international parity condition Goldsworthy will use to provide the estimate of the future JPY/GBP spot rate is most likely:A. covered interest rate parity.B. uncovered interest rate parity.C. relative purchasing power parity.
Using Exhibits 1, 2, and 3, which international parity condition would Goldsworthy most likely use to calculate the EUR Libor?A. Real interest rate parity B. Covered interest rate parity C. Uncovered interest rate parity
Based on the exchange rate midpoint in Exhibit 1 and the rates in Exhibit 3, the 90-day forward premium (discount) for the USD/GBP would be closest to:A. –0.0040.B. –0.0010.C. +0.0010.
Based on Exhibit 2, Underwood should conclude that three-month EUR Libor is:A. below three-month GBP Libor.B. equal to three-month GBP Libor.C. above three-month GBP Libor.
Based on Exhibits 1, 2, and 3, the mark-to-market gain for Goldsworthy’s forward position is closest to:A. GBP 20,470.B. GBP 20,500.C. GBP 21,968.
Using the quotes from Dealer A and B, the triangular arbitrage profit on a transaction of MXN 27,000,000 would be closest to:A. GBP 0.B. GBP 5,400.C. GBP 10,800.
Using Exhibit 1, which of the following would be the best reason for the revised USD/GBP dealer quote of 1.5760/1.5768?A. A request for a much larger transaction B. A drop in volatility in the USD/GBP market C. A request to trade when both New York and London trading centers are opened
Using the quotes in Exhibit 1, the amount received by Goldsworthy from converting JPY 225,000,000 will be closest to:A. GBP 1,200,448.B. GBP 1,200,576.C. GBP 1,200,704.
Which of McFadden’s predictions in Statement 5 is least likely to be correct?A. Prediction 1 B. Prediction 2 C. Prediction 3
The factor that McFadden is most likely referring to in Statement 4 is:A. FX reserve levels.B. domestic demand.C. the level of capital flows.
The most likely response to Question 2 is a(n):A. increase in the price level.B. decrease in risk premiums.C. increase in government debt.
The best response to Question 1 is that the policies will:A. have no impact.B. lead to currency appreciation.C. lead to currency depreciation.
The least appropriate factor used to describe the type of models mentioned in Statement 3 is:A. inflation.B. price level changes.C. risk premium adjustments.
In Statement 2, McFadden is most likely failing to consider the:A. initial gap between the country’s imports and exports.B. effect of an initial trade deficit on a countries’ exchange rates.C. lag in the response of import and export demand to price changes.
The international parity condition McFadden is referring to in Statement 1 is:A. purchasing power parity.B. covered interest rate parity.C. uncovered interest rate parity.
Assume a developed market (DM) country has an expansive fiscal policy under high capital mobility conditions. Why is its currency most likely to depreciate in the long-run under an integrated Mundell-Fleming and portfolio-balance approach?”Upon her return, Wagener and McFadden review the
Assume an emerging market (EM) country has restrictive monetary and fiscal policies under low capital mobility conditions. Are these policies likely to lead to currency appreciation, currency depreciation, or to have no impact?
If Smith’s statement on parity conditions is correct, future spot exchange rates are most likely to be forecast by:A. current spot rates.B. forward exchange rates.C. inflation rate differentials.
The factor least likely to lead to a narrow bid/offer spread for the industrial company’s needed currency trade is the:A. timing of its trade.B. company’s credit rating.C. pair of currencies involved.
Based on Exhibit 3, the potential all-in USD return on the carry trade is closest to:A. 1.04%.B. 1.40%.C. 1.84%.
Based on Exhibit 2, the most appropriate recommendation regarding the triangular arbitrage trade is to:A. decline the trade, no arbitrage profits are possible.B. execute the trade, buy BRL in the interbank market and sell it to the dealer.C. execute the trade, buy BRL from the dealer and sell it in
Based upon Exhibit 1, the forward premium (discount) for a 360-day INR/GBP forward contract is closest to:A. –1.546.B. 1.546.C. 1.576.
describe warning signs of a currency crisis.
describe objectives of central bank or government intervention and capital controls and describe the effectiveness of intervention and capital controls;
explain the potential effects of monetary and fiscal policy on exchange rates;
explain how flows in the balance of payment accounts affect currency exchange rates;
describe the carry trade and its relation to uncovered interest rate parity and calculate the profit from a carry trade;
explain approaches to assessing the long-run fair value of an exchange rate;
evaluate the use of the current spot rate, the forward rate, purchasing power parity, and uncovered interest parity to forecast future spot exchange rates;
describe relations among the international parity conditions;
explain international parity conditions (covered and uncovered interest rate parity, forward rate parity, purchasing power parity, and the international Fisher effect);
calculate the mark-to-market value of a forward contract;
distinguish between spot and forward rates and calculate the forward premium/discount for a given currency;
identify a triangular arbitrage opportunity and calculate its profit, given the bid–offer quotations for three currencies;
calculate and interpret the bid–offer spread on a spot or forward currency quotation and describe the factors that affect the bid–offer spread;
Considering industry changes over the past year, one update that Maxwell should make to the simulation model is the:A. choice of the distribution of CSI and ECI.B. relation between CSI and occupancy rates.C. removal of constraints on occupancy rates.
Maxwell’s justifications for her choice of simulation analysis are correct with respect to:A. correlated risks.B. continuous risks.C. both correlated risks and continuous risks.
Which of Maxwell’s three concerns can be best described as being attributable to nonstationary distributions?A. Concern 1 B. Concern 2 C. Concern 3
Which of Maxwell’s assumptions can be best described as a simulation constraint? The assumption about the:A. occupancy rate.B. operating expenses.C. property management fee.
Maxwell’s distribution assumption for the property management fee in the simulation is based on:A. historical data.B. simulation results.C. cross-sectional data.
With respect to the simulation, Maxwell should be concerned that:A. CSI does not follow a symmetric distribution.B. property management fees are not normally distributed.C. there is a lack of correlation between the CSI and the management fee percentage.
With respect to forecasting annual gross revenue, Maxwell’s best course of action to deal with the inputs problem should be to:A. simulate the ECI and the CSI independently.B. build the correlation explicitly into the simulation.C. estimate revenues using the ECI only and eliminate the CSI from
compare scenario analysis, decision trees, and simulations.
describe issues in using simulations in risk assessment;
describe some common constraints introduced into simulations;
describe advantages of using simulations in decision making;
describe how to treat correlation across variables in a simulation;
explain three ways to define the probability distributions for a simulation’s variables;
describe steps in running a simulation;
Based on Exhibit 2, the model’s accuracy metric is closest to:A. 77%.B. 81%.C. 85%.
Based on Exhibit 2, the model’s F1 score is closest to:A. 77%.B. 81%.C. 85%.
Based on Exhibit 2, the model’s precision metric is closest to:A. 78%.B. 81%.C. 85%.
Is Steele’s statement regarding the relationship between feature selection/feature engineering and model fit correct?A. Yes.B. No, because she is incorrect with respect to feature selection.C. No, because she is incorrect with respect to feature engineering.
To address her concern in her exploratory data analysis, Steele should focus on those tokens that have:A. low chi-square statistics.B. low mutual information (ML) values.C. very low and very high term frequency (TF) values.
Given her objective, the visualization that Steele should create in the exploratory data analysis step is a:A. scatter plot.B. word cloud.C. document term matrix.
The output created in Steele’s Step 3 can be best described as a:A. bag-of-words.B. set of n-grams.C. document term matrix.
Steele’s Step 2 can be best described as:A. tokenization.B. lemmatization.C. standardization.
Is Steele’s statement regarding Step 1 of the preprocessing of raw text data correct?A. Yes.B. No, because her suggested treatment of punctuation is incorrect.C. No, because her suggested treatment of extra white spaces is incorrect.
Based on Exhibit 1, for the firm with ID #3, Steele should compute the scaled value for the “Interest Expense” variable as:A. 0.008.B. 0.083.C. 0.250.
During the preprocessing of the data in Exhibit 1, what type of data transformation did Steele perform during the data preprocessing step?A. Extraction B. Conversion C. Aggregation
What type of error is most likely present in the last row of data (ID #4) in Exhibit 1?A. Inconsistency error B. Incompleteness error C. Non-uniformity error
What type of error appears to be present in the IPO Date column of Exhibit 1?A. invalidity error.B. inconsistency error.C. non-uniformity error.
Steele’s concern about using Twitter data in the model best relates to:A. volume.B. velocity.C. veracity.
Which of Steele’s statements relating to the steps in building structured data-based and text-based ML models is correct?A. Only Statement 1 is correct.B. Only Statement 2 is correct.C. Statement 1 and Statement 2 are correct.
evaluate the fit of a machine learning algorithm.
describe methods for extracting, selecting and engineering features from textual data;
describe preparing, wrangling, and exploring text-based data for financial forecasting;
describe objectives, steps, and techniques in model training;
describe objectives, methods, and examples of data exploration;
describe objectives, steps, and examples of preparing and wrangling data;
state and explain steps in a data analysis project;
Regarding neural networks (NNs) that Alef might potentially implement, which of the following statements is least accurate?A. NNs must have at least 10 hidden layers to be considered deep learning nets.B. The activation function in a node operates like a light dimmer switch since it decreases or
Regarding Comment #2, Moresanu has been thinking about the applications of neural networks (NNs) and deep learning (DL) to investment management.Which statement(s) best describe(s) the tasks for which NNs and DL are wellsuited?Statement I NNs and DL are well-suited for image and speech recognition,
Assuming a Classification and Regression Tree (CART) model is initially used to accomplish Step 3, as a further step which of the following techniques is most likely to result in more accurate predictions?A. Discarding CART and using the predictions of a Support Vector Machine(SVM) model instead.B.
Assuming a Classification and Regression Tree (CART) model is used to accomplish Step 3, which of the following is most likely to result in model overfitting?A. Using the k-fold cross validation method B. Including an overfitting penalty (i.e., regularization term).C. Using a fitting curve to
Comparing two ML models that could be used to accomplish Step 3, which statement(s) best describe(s) the advantages of using Classification and Regression Trees (CART) instead of K-Nearest Neighbor (KNN)?Statement I For CART there is no requirement to specify an initial hyperparameter(like
The target variable for the labelled training data to be used in Step 3 is most likely which one of the following?A. A continuous target variable.B. A categorical target variable.C. An ordinal target variable.
The hyperparameter in the ML model to be used for accomplishing Step 2 is?A. 100, the number of small-cap stocks in Alef’s portfolio.B. 10,000, the eligible universe of small-cap stocks in which Alef can potentially invest.C. 20, the number of different groups (i.e. clusters) into which the
Which of the following machine learning techniques is most appropriate for executing Step 2:A. K-Means Clustering B. Principal Components Analysis (PCA)C. Classification and Regression Trees (CART)
Assuming regularization is utilized in the machine learning technique used for executing Step 1, which of the following ML models would be least appropriate:A. Regression tree with pruning.B. LASSO with lambda (λ) equal to 0.C. LASSO with lambda (λ) between 0.5 and 1.
The machine learning techniques appropriate for executing Step 1 are most likely to be based on:A. regression B. classification C. clustering
Dimension reduction techniques are best described as a means to reduce a set of features:A. to a manageable size without regard for the variation in the data.B. to a manageable size while increasing the variation in the data.C. to a manageable size while retaining as much of the variation in the
Hierarchical clustering is best described as a technique in which:A. the grouping of observations is unsupervised.B. features are grouped into a pre-specified number, k, of clusters.C. observations are classified according to predetermined labels.
A neural network is best described as a technique for machine learning that is:A. exactly modeled on the human nervous system.B. based on layers of nodes connected by links when the relationships among the features are usually non-linear.C. based on a tree structure of nodes when the relationships
CART is best described as:A. an unsupervised ML algorithm.B. a clustering algorithm based on decision trees.C. a supervised ML algorithm that accounts for non-linear relationships among the features.
Which of the following best describes penalized regression? Penalized regression:A. is unrelated to multiple linear regression.B. involves a penalty term that is added to the predicted target variable.C. is a category of general linear models used when the number of features and overfitting are
As used in supervised machine learning, regression problems involve:A. binary target variables.B. continuous target variables.C. categorical target variables.
Describe how ensemble learning might be used by the team to develop even better predictions for Kim’s selection of corporate high-yield bonds.
Describe how the team might avoid overfitting and improve the predictive power of a CART model.
Describe how a CART model operates at each node of the tree.
Evaluate whether a CART model is appropriate for addressing her problem.
Describe the dimensionality of the model that Kim requests her analytics team to develop.
State the type of problem being addressed by Kim.
Which of the following best describes dimension reduction? Dimension reduction:A. focuses on classifying observations in a data set into known groups using labeled training data.B. focuses on clustering observations in a data set into unknown groups using unlabeled data.C. focuses on reducing the
Which of the following statements concerning supervised learning best distinguishes it from unsupervised learning? Supervised learning involves:A. training on labeled data to infer a pattern-based prediction rule.B. training on unlabeled data to infer a pattern-based prediction rule.C. learning
Which of the following statements is most accurate? When attempting to discover groupings of data without any target (Y) variable:A. an unsupervised ML algorithm is used.B. an ML algorithm that is given labeled training data is used.C. a supervised ML algorithm is used.
Which of the following best describes machine learning? Machine learning:A. is a type of computer algorithm.B. is a set of computer-driven approaches aimed at generating structure or predictions from data without human intervention by finding a pattern and then applying the pattern.C. is a set of
describe neural networks, deep learning nets, and reinforcement learning.
describe unsupervised machine learning algorithms—including principal components analysis, k-means clustering, and hierarchical clustering—and determine the problems for which they are best suited;
describe supervised machine learning algorithms—including penalized regression, support vector machine, k-nearest neighbor, classification and regression tree, ensemble learning, and random forest—and determine the problems for which they are best suited;

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Ethical And Professional Standards Quantitative Methods And Economics Level II Volume 1 CFA Institute - Solutions

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